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Audit service hits back at finance ministry allegations over airports

Larnaca airport (Christos Theodorides)

The permanent secretary of the finance ministry George Panteli has sent a letter demanding that the attorney-general investigates auditor-general Odysseas Michaelides for allegedly leaking false information and disclosing state secrets.

The reason for the request is related to the auditor-general’s reports last September to the House finance committee which concerned the extension of the concession agreement of the Larnaca and Paphos airports with the operator Hermes by an additional 5.5 years, with the mooted agreement lasting until November 2036. The discussions at the time led to the suspension of the airline incentive schemes for a few weeks, before they were ultimately resolved.

At the time, the compromise formula between the government and Hermes provided that the company would build the projects of the second phase, at a cost of €150 million, provided for in the original contract, while the Republic of Cyprus would agree to extend the contract concession to facilitate the financing of the company by lenders.

Panteli said that Michaelides, in the committee meeting, created ‘grey areas’ for the formula under discussion and left hints about the ministry colluding with the company, with a report from the Ministry of Transport to the company being leaked at the time.

In his letter to the attorney-general, Panteli suggests that the auditor-general leaked a draft memorandum to the media to reach a compromise between the two parties, which was marked “confidential”.

What is more, in his letter, which was sent on January 19 and revealed in local newspaper Phileleftheros, Panteli calls on attorney-general Giorgos Savvides to investigate Michaelides for possibly committing criminal offences.

According to the letter, the publication of false information that misinformed the public concerns two issues.

The first relates to the auditing firm Ernst Young (EY) being replaced by PwC, to provide financial services to reach a compromise between the Republic and Hermes.

Although the audit service had not completed its investigation, according to Panteli, the auditor-general referred to a possible deliberate replacement of Ernst Young, because the results of its studies did not serve the ministry.

“The specific report was not isolated but came as a continuation of his reports on the involvement of the company’s board members in bribery scandals, as well as the leak of the report by the transport ministry to Hermes, with clear implications for a mutual agreement,” Panteli said.

The second issue concerns the auditor-general’s public statements regarding an agreement between Hermes and the Republic for the extension of the airport lease agreement.

According to Panteli, the ministry forwarded to the auditor-general all the evidence, which proved that no agreement had been concluded, as this can only be achieved after the completion of the studies by the consultants and the approval by the EU’s General Directorate of Competition.

“As a consequence of the auditor general’s public reports, the general public had the impression that an agreement had been signed and indeed it secured the interests of the management company and not the state,” Panteli said in his letter.

The possible offence of disclosing state secrets is related, according to the finance ministry, to the draft memorandum of understanding to reach a compromise with Hermes, which was marked “confidential”.

Panteli says the ministry forwarded the specific draft to the audit service, the terms of which were being processed and negotiated between the parties.

“Despite the apparent confidential nature of the document, translated excerpts of it were published a few days later on a website,” Panteli said.

The letter added that the state’s external legal advisors had repeatedly stressed the need to ensure confidentiality, due to the pending arbitration process.

In response to the allegations, the audit service on Saturday issued a statement, saying that the attorney-general has been informed of the possibility of criminal or civil offences, in connection with the finance ministry entering into two contracts with financial consultants, one in November 2021 and one in July 2022, without the existence of available appropriations and by direct award, without an open tender, in violation of the relevant public procurement legislation.

“The relevant decisions were taken by the finance minister and the director-general of his ministry,” the statement said.

“Following the publication in Phileleftheros newspaper today, the Ministry of Finance, apparently in an attempt to create the appropriate background that will make possible the non-criminal investigation of the complaint we have submitted, has also submitted a complaint to the attorney-general,” the statement added.

The statement said that in September 2022 the service informed, after being requested to do so, the competent House finance committee about “the burden on the state and the illegal agreement launched by the government to extend the airport agreement by 5.5 years and for the illegal agreement that would involve incentives to airlines”.

When the government realised how exposed it was with what it was promoting with the 5.5-year extension agreement, it tried to stop it, without any measures that would enforce the start of construction of the contractually defined second phase of the airports.

“Regarding the incentive agreement, after our intervention, it was improved with a benefit of €46 million for the state,” the service argued.

“The complaints of the finance ministry are patently non-existent and ridiculous; it would be absurd to think that informing the competent House committee about a public contract constituted a criminal offence, or at least a misdemeanour, especially since the committee itself invited us to clarify the situation before deciding on the release of the fund,” it added.

The audit office said that providing such information was imperative and necessary. The only thing that could be a violation of the law was “the concealment of facts attempted by the finance ministry, by not informing the committee that the contracts for which it had requested the release of appropriations had already been concluded”.

“Since the finance ministry is obviously aware of this, the only explanation is that the ministry believes that such a complaint of its own could be sufficient justification for the attorney-general to decide that, since the finance ministry has also submitted a complaint, even if it baseless, that no criminal investigation will be initiated for the complaint we filed for reasons of public interest,” the statement concluded.

 

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